The status and prospects of energy market integration in East Asia

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Energy Market Integration in East Asia: Deepening Understanding and Moving Forward, 2014, pp. 9 - 24
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Energy market integration (EMI) has been pursued in East Asia for decades. However, no explicit definition of EMI has been established yet. There is a vague consensus in East Asia that main benefits and incentives to promote EMI should be found in improving energy security, energy efficiency, the establishment of emergency response systems and so on; reducing carbon dioxide emissions; and facilitating regional integration (Shi and Kimura, 2010; Kimura and Shi, 2011). However, what would be the final goal of EMI and how it should proceed in East Asia has not been clear at all. One key reason is that the architecture of East Asian economic integration itself is still under development. Although European Union style integration is not obviously appropriate in East Asia, an alternative for EAS has not been well defined yet. Without a clear definition of the EMI goals and boundaries, it is difficult to formulate concrete strategies and actions to promote EMI by using a topdown approach, i.e., setting the ultimate goals and following well-defined steps to achieve them with consistent strategies and actions. Given the lack of a clear vision for EMI in East Asia, the first ERIA EMI report (Shi and Kimura, 2010) proposed a conceptual framework based on an incremental, bottom-up approach to review the process and impacts of EMI. This approach identifies areas where closer integration can be achieved even without defining the ultimate goals of EMI. The five issues that were initially identified in the conceptual framework are: trade liberalization; investment liberalization; the linkage of regional energy infrastructure; the liberalization of domestic energy markets; and energy pricing reform, in particular, removal of fossil fuel subsidies. Such a framework has been implemented in later studies including Kimura and Shi (2011) and Wu et al. (2012). This chapter further improves and elaborates the conceptual framework. We also aim to improve the understanding of the development, impact and prospect of EMI through updating the status in East Asia. The next section presents the rationale for promoting EMI in the EAS region. We then discuss the conceptual framework before going on to review the status of the EMI based on the proposed conceptual framework. The chapter concludes with remarks on policy implications.
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